20050812Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:KIRA DALE PFISTERER
DATE:AUGUST 8, 2005
RE:APPLICATION OF IDAHO POWER COMP ANY FOR BLANKET
AUTHORITY TO SELL AIR EMISSION ALLOWANCES AND FOR AN
ACCOUNTING ORDER. CASE NO. IPC-05-20.
On June 9, 2005 , Idaho Power Company filed an Application with the Commission
for (1) blanket authority to sell surplus sulfur dioxide ("S02") allowances obtained by the
Company under the provisions of the federal Clean Air Act Amendments of 1990; and (2) an
accounting order to provide for recording any sale(s) of such allowances. On July 15 , 2005, the
Commission issued a Notice of Application and Modified Procedure. See Order No. 29821.
Comments were received from the Commission Staff and two private citizens.
THE APPLICATION
Title IV of the Clean Air Act Amendments of 1990 establishes a national program for
the reduction of acid rain. 42 USCA ~~ 7651 et seq. The centerpiece of the Title IV acid rain
program is the incentive- or market-based
, "
cap and trade" S02 emission program. Under the
cap and trade program, the Environmental Protection Agency (EP A) sets a cap or ceiling on the
total amount of S02 emissions allowed nationwide. Based on this cap, the EP A allocates a
certain number of S02 emissions allowances to thermal power plant owners.
Each year, the thermal power plant owners must hold sufficient allowances to cover
actual S02 emissions. A thermal power plant owner holding insufficient allowances to cover its
annual emissions must either purchase additional allowances or it is automatically fined and
must surrender future year allowances to cover the shortfall. A thermal power plant holding
surplus S02 allowances in a given year may save the surplus allowances or sell them. S02
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emissions allowances are fully marketable commodities and can be traded on the open market or
in special EP A-sponsored auctions.
Idaho Power has an ownership interest in three thermal power plants in the western
United States that receive allowances from the EP A. These plants include: (1) Jim Bridger Units
1 through 4 (1/3 interest); North Valmy Units 1 and 2 (1/2 interest); and Boardman (1/1
interest). Idaho Power believes that after retaining sufficient allowances to cover the S02
emISSIons for its facilities and providing a reasonable cushion for unexpected changes and
contingencies, it can make surplus S02 allowances available for sale.
Idaho Power seeks blanket authority to sell the S02 allowances to avoid any potential
regulatory cloud" on their marketability. Idaho Power also requests an accounting order to
provide for the recording of any proceeds received from such sales. At this time, Idaho Power
does not seek a Commission determination regarding the appropriate ratemaking treatment of the
allowances. Instead, Idaho Power suggests that it can provide the Commission with notice of
any future sale within sixty (60) days of the transaction, and the Commission, at that later date
may then initiate proceedings to determine the appropriate ratemaking treatment of the proceeds.
CO MMENTS
Staff
Staff supports the Idaho Power Application for blanket authority to sell surplus S02
emissions allowances. Staff also supports a temporary accounting order for tracking proceeds.
However, Staff does not want to wait for Idaho Power to give notice of a transaction before
proceeding with a determination regarding the appropriate ratemaking treatment of the proceeds
from such a sale. Rather, Staff suggests that the Commission proceed as soon as practicable with
workshops to determine the appropriate ratemaking treatment for the proceeds.
Staff believes that blanket authority to sell allowances is appropriate. Based on the
assumption that Idaho Code ~ 61-328 does not apply to S02 emissions allowances, Staff
concludes that Idaho Power should not have to seek Commission approval prior to each
transaction in which it sells S02 emissions allowances.
Pursuant to Idaho Code ~ 61-328, an electric utility must get Commission approval
prior to selling or transferring any property that the utility owns, controls , or operates and which
is "used in the generation, transmission, distribution, or supply of electric power and energy.
Idaho Code ~ 61-328(1). Further, prior to approving the transaction, the Commission must find
DECISION MEMORANDUM
that: (1) the transaction is consistent with the public interest; (2) the cost of and rates for
supplying the service will not be increased due to the transaction; and (3) the applicant for such
acquisition or transfer must have the bona fide intent and financial ability to operate and
maintain the property in the public service. Idaho Code ~ 61-328(3).
While S02 allowances are necessary for Idaho Power to generate electricity from its
thermal generating plants, the S02 allowances are not directly used in the "generation
transmission, distribution, or supply of electric power and energy" and cannot be "operated and
maintained in the public service" as contemplated in Idaho Code ~ 61-328. Therefore, Staff does
not think that Idaho Code ~ 61-328 applies, and the Commission may grant blanket authority to
Idaho Power to sell the S02 allowances. Nonetheless , Staff notes that the Commission should
be certain to retain the authority to evaluate the reasonableness of each transaction for
ratemaking purposes.
Staff also agrees with Idaho Power s proposed accounting treatment of the proceeds
until a ratemaking determination is made. This accounting is consistent with Code of Federal
Regulations No. 18, paragraph H of General Instructions 21.
However, rather than wait up to sixty (60) days after the first sale of S02 emissions
before determining appropriate ratemaking treatment, Staff suggests that the Commission
proceed expeditiously with workshops to determine the appropriate ratemaking treatment of any
proceeds acquired through the sale of surplus S02 emissions allowances. These workshops
should involve Idaho Power, Staff, and any other interested parties.
Public Comments
The Commission received timely comments on Idaho Power s Application from two
private citizens. Both comments oppose the Application.
Lee Halper of Jerome, Idaho commented that the environment already has excessive
SOx and NOx levels. Mr. Halper believes that allowing Idaho Power to sell surplus allowances
would simply allow more of the pollutants to be released.
Jerry Jayne of Idaho Falls, Idaho also filed comments. Mr. Jayne expressed concern
for the people living in the vicinity of a power plant that buys surplus allowances in order to emit
additional S02. In addition, Mr. Jayne expressed concern that allowing S02 trading might
facilitate the construction of coal-fired power plants in Idaho, an outcome he finds undesirable.
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Mr. Jayne also noted that the Clean Air Act allows states to set S02 emissions
standards provided that the states' standards are more stringent then the EPA's standards. Mr.
Jayne suggested that the Commission consider making a recommendation to the Idaho
Legislature to limit S02 emissions to their current levels in order to prevent any additional
environmental degradation.
COMMISSION DECISION
Does the Commission grant Idaho Power Company s Application for an Order
authorizing the blanket sale of air emissions allowances?
Does the Commission grant Idaho Power Company s Application for an accounting
order?
Does the Commission want to adopt Staff recommendation and proceed
expeditiously with workshops in order to determine the appropriate ratemaking treatment of the
proceeds from any such sale?
Does the Commission wish to make a recommendation to the Legislature regarding
stricter limits on S02 emissions?
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Kira DJie Pfisterer
M: IPCEO 5 20- kdp2
DECISION MEMORANDUM